The Cycle: Bloated Political Promises, Fiat Debt, Systemic Collapse

The temptation has proven too great to resist, time and time again. Probably because it always works so damned well at first. You establish a currency backed by something real, like the gold-backed dollar.

Then you take away that backing, but people, accustomed to viewing that currency as intrinsically valuable, continue to mistakenly view it the same light, failing to account for the fact that it is no longer redeemable for anything except the blind faith of other market participants. As soon as inevitable mathematical reality breaks that misguided faith, the system fails.

Politicians win re-election by promising something for nothing: more benefits and entitlements and lower taxes. The gap between higher costs and declining revenues will be filled by government borrowing.

All this additional borrowing will be paid by the magic of "growth", which will expand tax revenues at a rate that exceeds the cost of borrowing.

But demographics, resource depletion and the diminishing returns of a consumer economy fueled by rapidly expanding public and private debt have sapped "growth" in fundamental ways. Ironically, borrowing and spending more to spur "growth" only hastens the diminishing returns of increasing debt to fund consumption today.

When faced with fiscal crises, central states/banks inevitably succumb to the temptation to print/borrow currency in whatever sums are needed to fill the shortfall of the moment. This profligate creation of currency seems to be magic at first; everyone accepts the "new money" at the current value

But eventually gravity takes hold and the currency's purchasing power declines, as the real economy (the production of goods and services) grows at rates far below the expansion of currency.

Even the greatest empires in human history have been unable to resist the "easy" solution of devaluing currency as the means of fulfilling all the promises that were made in less trying and more prosperous times.